Principal Private Residence Relief – the Upper Tribunal rules in favour of the homeowning taxpayer

Mary Schofield, Partner for Lovewell Blake

Tax can be a huge concern when thinking about selling a house, but Principal Private Residence (PPR) is a powerful relief which can allow you to sell your main home completely tax free. But what about when you’ve built a new house?

Mary Schofield, Partner for Lovewell Blake

PPR is a concept many homeowners will be familiar with, allowing them to sell their main homes without paying a penny in capital gains tax in many cases. Many of us take this relief for granted, and it is easy to forget that this may be restricted where you haven’t lived in the house the whole time that you have owned it.

The legislation specifically allows some periods where you do not live in the house to qualify for the relief. In summary, you may live in job-related accommodation overseas for an unlimited period of time, in job-related accommodation in the UK for up to four years or be absent for any other reason for up to three years. Additionally, you will always be treated as living in your home for the last 9 months of ownership.

The legislation provides that relief will not be available during the “period of ownership” of the property during which the house was not the taxpayer’s only or main residence but does not define what “period of ownership” it is talking about.

This issue was at the centre of a recent Upper Tribunal case between HMRC and the Lee family, R & C Commrs v Lee & Anor [2023] BTC 531.

Mr and Mrs Lee had purchased a plot of freehold land in 2010. They demolished the existing house on the land and rebuilt a new one, completing construction in March 2013. The couple moved into their new house only four days after completion, and it was their only house up until they sold in March 2014. On this sale, they claimed full PPR relief, seeking to exempt the whole gain from tax.

HMRC enquired into the tax returns and partially denied their claims. At the First-Teir Tribunal (FTT), HMRC argued that the land and the house on it were both part of a single asset, as the Lees had only lived on the land for 18 months out of their 43 months of ownership, they could only claim relief for this portion.

The taxpayer disagreed, arguing that the “period of ownership” in the legislation was the period of ownership of the “dwelling-house”, which is a separate thing from the period of ownership of the land. As they had lived in the house for the whole time it existed, full relief was available.

The FTT concurred with the taxpayer, and on appeal, the Upper Tribunal also concluded that the relief relates to the period of ownership of to the house, not the land on which it sits.

The rules in connection with PPR can be complex, depending on personal circumstances. Furthermore, homeowners must report the sale of their house within 60 days if full relief from capital gains tax is not available, so if there is any concern, it is always best to seek professional advice.

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